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Conversely, where equity investors have these characteristics and the other requirements in Interpretation no. A VIE’s primary beneficiary is the entity that will consolidate it in its financial statements.In some cases, it is relatively easy to determine which entity is the primary beneficiary through a qualitative analysis of the entity’s ability to make decisions about the VIE and share in its profits or losses.46 in January 2003 and a revised version in December 2003 to help companies decide whether to consolidate VIEs into their financial statements.A VIE MUST BE CONSOLIDATED INTO THE FINANCIAL statements of the primary beneficiary company when it does not have enough equity at risk or its equity investors lack any of three characteristics of controlling financial interest.The purpose of this article is to explain the substantive provisions of Interpretation no.46(R) and provide CPAs with practical guidance on the ongoing process of deciding whether a VIE needs to be consolidated, the measurements the primary reporting entity should use in consolidation and the required disclosures.Equity investors in the VIE lack any of three characteristics of controlling financial interest.Investors with such an interest — Participate in decision-making processes by voting their shares.
This means the ability to absorb expected losses is a tie-breaker CPAs should use to determine which entity, if any, is a VIE’s primary beneficiary. nonconsolidation decision on a determination of which entity holds a majority of the variable interests in another entity.The primary beneficiary is the reporting entity, if any, that receives the majority of expected returns or absorbs the majority of expected losses.